While there’s no way of being absolutely certain, the EMA moving average is the next best thing! Read on to explore how EMA helps traders make profitable decisions and other things like the best moving average for 4 hour chart.
Let’s get started!
How to Use EMA Moving Average for Day Trading
An EMA indicator can help day traders spot the ideal entry and exit points in their trade. Since the EMA indicator uses the most recent data points, it is very sensitive to market changes. This means that you’ll spot a trend shift as it happens.
If the price crosses the EMA indicator line, you can start buying (or at least, you should). In contrast, when the price level dips below the indicator line, you can start selling. Day traders use 5-200 EMAs depending on the timeframe for their trade strategy.
EMA is easily one of the best moving average to use for day trading. It can be even more effective when coupled with RSI, MACD, and others.
The Benefits of Using EMA Moving Average
Using moving average EMA indicators helps traders make informed decisions when buying into a trade or selling a stock or security. Minor trend shifts and fluctuations are all too common, and you need to be able to see clearly where the market is headed.
In comes the EMA! It uses recent market data to point out where a given stock is moving in terms of pricing and volume. If you know how to see moving average, you can reap several benefits, such as:
- Being able to forecast which commodities and goods have a constant demand
- Pick up even slight trends
- Identifying seasonality
- Setting aside random variations
- Identifying support and resistance
Comparing EMA and Simple Moving Average (SMA)
Both the EMA moving average and SMA (Simple Moving Average) use market data to help traders identify the direction in which a stock or commodity is moving. The key difference here is that while SMA moving average for day trading uses average data for plotting its curve. EMA relies much more on recent data plots.
This means that EMA, in comparison is much more sensitive to market fluctuations, allowing you to identify any trend shifts much more quickly. In short, SMA can help you analyze trend shifts in general whereas EMA is better suited for identifying slight tendencies as they’re happening.
For day traders, EMA is much more useful, although there’s nothing stopping you from throwing in SMA to the mix as well.
How to Calculate EMA Moving Average
Lucky for you, you don’t have to manually calculate the EMA moving average for swing traders. Instead, you can just get the EMA moving average indicator drawn for you with just a click. But knowing how it works can be just as useful as figuring out what moving average to use for day trading (psst, it’s 5-8-13, keep that in mind).
To calculate the EMA, you start by calculating the SMA which is a simple average of the trade prices over a given time period. Then you figure out a multiple for the most recent data plots depending on the length of the timeframe, i.e., 18.18% for 10 days.
Once you factor in the multiple, you get the actual EMA reading.
Using EMA for Swing Trading
Lastly, let’s see how EMA moving average factors in swing trading. If you’re a budding trader, you need to be able to work with the most effective combinations. For swing trading, 55, 89, and 144 EMAs are deemed the best. Below is a 4 hour chart of the SYK stock. The Greay EMA Cloud is the 55 and the Purple is the 89. When the stock is trending,m see how the price action comes to test these EMA Clouds as support, before moving back up again. This is a fantastic way of adding to your stocks swing trading positions. Check out the EMA cloud trading indicator for many different platforms HERE
Hopefully, you now understand which moving average is best for day trading and are yearning to try out EMA indicators to help you make profitable trades. Happy trading!